New regulations that took effect June 1 will lead to significant changes for brokers and dealers, futures commission merchants, and their auditors, the AICPA and the Center for Audit Quality (CAQ) said.
Auditors should discuss the changes with their broker and dealer and futures commission merchant clients as soon as practicable, the AICPA and CAQ advised in a joint member alert. The alert describes the regulatory changes that apply to audits and attestation engagements of brokers and dealers and futures commission merchants, including those that are dually registered.
The alert, available at tinyurl.com/mlwm7ce, addresses:
- SEC amendments to Rule 17a-5, whose requirements include the specification that financial statement audits of SEC-registered brokers and dealers must be performed in accordance with PCAOB standards.
- PCAOB Attestation Standard No. 1, which governs examination engagements regarding compliance reports of brokers and dealers, and Attestation Standard No. 2, which governs review engagements regarding exemption reports of brokers and dealers. These engagements are required under the SEC’s amendments to Rule 17a-5, and the independent public accounting firm registered with the PCAOB that performs the audit of the annual financial statements also must be engaged for the examination or review, according to the alert.
- PCAOB Auditing Standard No. 17, which describes the financial statement auditor’s duties when engaged to report on whether supplemental information accompanying the financial statements is fairly stated, in all material respects, in relation to the financial statements as a whole.
- Independence considerations. Independence rules that apply to audits of brokers and dealers recently have been a focus of the PCAOB and SEC.
- New Commodity Futures Trading Commission (CFTC) customer protection rules that will affect audits of futures commission merchants and those dually registered as futures commission merchants and brokers and dealers.
- The continuing requirement that audits of introducing brokers solely registered with the CFTC be performed under AICPA standards, including AICPA independence standards. This requirement was not changed by amendments to CFTC regulations.
- The PCAOB’s broker and dealer inspection programs, and forums the PCAOB holds to share important information about its activities with smaller broker and dealer auditors that are registered with the PCAOB.
- Activities of the AICPA’s peer review program with respect to audits of brokers and dealers.
The new rules addressed in the alert generally are effective for audits and attestation engagements of brokers and dealers and futures commission merchants with fiscal years ending on or after June 1, 2014. Other rule changes have earlier or later effective dates, but this alert only focuses on the major changes that take effect June 1.
The PCAOB is asking for additional comments on its proposal for reorganizing the board’s auditing standards.
The framework would reorganize the existing PCAOB-issued and interim auditing standards by topic with a single numbering system. The original comment period for the proposal ended May 28, 2013.
Along with a supplemental request for comment, the PCAOB released on its website a demonstration that presents the existing auditing standards as they would appear if reorganized according to the framework proposed by the board in March 2013.
The supplemental request, available at tinyurl.com/lmo8nn9, describes the line-by-line amendments to PCAOB standards and interim standards that would be needed to implement the proposed reorganization. The supplemental request also includes other minor changes from the original proposal.
Mapping tools are included in the online demonstration version, which is available at tinyurl.com/padukbl, to show users the difference between the existing organizational structure and the structure proposed by the PCAOB. An email link in the demonstration version facilitates comments on any aspect of the proposed reorganization.
Comments are sought by July 8 and may be emailed to firstname.lastname@example.org.
A new International Auditing and Assurance Standards Board (IAASB) reproposal is intended to clarify and strengthen auditors’ responsibilities related to “other information” that is included in organizations’ annual reports outside the audited financial statements.
The reproposed International Standard on Auditing 720 (Revised), The Auditor’s Responsibilities Relating to Other Information, would require the auditor to perform limited procedures to evaluate the consistency of the other information with the audited financial statements.
The reproposal would require the auditor to consider whether there is a material inconsistency between the other information and information he or she learned while conducting the audit. The auditor also would be required to remain alert for other indications that the other information appears to be materially misstated.
The PCAOB also is gathering feedback on its own other information proposal, which would require audits to evaluate and report on information that is included in an annual report but is outside the financial statements.
Commenters on a previous IAASB other information proposal in 2012 said it needed to be clarified to prevent divergent practices, according to the IAASB.
New nonauthoritative guidance issued by the AICPA addresses changes to accountants’ or auditors’ reports when a client adopts a new Private Company Council (PCC) alternative that results in a change to a previously issued report.
Private company clients can elect not to apply variable-interest entity guidance to certain common-control leasing arrangements as a result of the alternative, issued in March as Accounting Standards Update No. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements.
Modifications to accountants’ compilation or review reports and auditors’ reports are described when a client adopts a PCC alternative that results in a change to a previously issued report. AICPA Technical Questions and Answers (TPAs) 9150.34 and 9160.30, available at tinyurl.com/6kj2uku, provide nonauthoritative guidance regarding these modifications.
The AICPA Auditing Standards Board (ASB) issued three auditing interpretations to help address some of the numerous accounting and auditing issues that are facing governmental cost-sharing multiple-employer pension plans and the government employers that participate in them.
The interpretations, available at tinyurl.com/n5k3366, are intended to help auditors of governmental cost-sharing plans and participating employers in their audits of entities that are implementing the new pension standards created by GASB. These standards will substantially change the accounting and financial reporting of public employee pension plans and the state and local governments that participate in those plans.
Interpretations were issued to the following sections of Statement on Auditing Standards No. 122, Statements on Auditing Standards: Clarification and Recodification, as amended:
- Section 500, Audit Evidence.
- Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors).
- Section 805, Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement.